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Economics Market Recap

Stock Market Week in Review (11/25/22) – Thanksgiving & FOMC

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Weekly Review

Despite the low volume from this holiday week, the markets were still able to extend their green streak. Thanksgiving week has averaged 0.6% returns since 1945, so this was not uncommon.

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The seasonality helped to offset the market’s ongoing growth concerns which may prove to be exacerbated going forward with China re-engaging in COVID-related measures.

China confirmed their first COVID-related death in six months. New lockdown measures have been reported in Beijing.

Ignoring seasonality, the upside this week was encouraged by better-than-expected earnings from retailers like Best Buy ($BBY), and Abercrombie ($ANF) as well as some tech names like Dell ($DELL) and Analog Devices ($ADI). Deere ($DE) the farm equipment company also was among the more notable earning reports this week.

Disney ($DIS) was also a winner this week off of the news that CEO Bob Chapek stepped down with former CEO Bob Iger reclaiming the roll for two years.

Like earnings, some economic reports were better than expected this week. The October Durable Goods Orders, October Home Sales, and the November University of Michigan Index of Consumer Sentiment read well. On the other hand, Weekly Initial Claims and Preliminary November IHS Markit Manufacturing and Services PMIs were worse than expected.

The FOMC minutes for the November 1-2 meeting was revealed on Wednesday. The report showed that “a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.” This supports the market’s notion that the Fed is likely to raise rates by 50 basis points in December rather than a 75-point hike. Before the minutes were released, the CME Fedwatch Tool showed an 80% chance that the next hike is for 50 basis points.

All 11 sectors of the S&P closed with a gain this week. Materials and Utilities making the largest gains while energy showed the thinnest gain.

Dividend Dollars’ Opinion

That’s it for the recap. Now for my opinion!

As I stated last week, due to positive seasonality the S&P could push above the 200-day EMA. I also stated that volume would be low, so if it pushed higher, it would be slow. And that’s exactly what happened this week.

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We barely broke above and held the 200-day EMA this week, and that was with low volume. That makes me think there’s not much strength behind it.

However, this seasonality could continue through the end of the year. I wouldn’t be surprised if we see a gap fill to the $4,080 area or even test the trend line drawn down from the ATH in January.

But after that, it could be anybody’s guess.

Over the medium term, I am bearish. I think that inflation is still a larger problem than the market anticipates. We have seen the market move higher on “better-than-expected” inflation readings where inflation is still over 7% and CPI has yet to peak.

The Fed may lessen the size of the rate hikes, but we are a long way away from ever having rates decreased. Till then, the market is at risk of entering a very serious recession.

The Fed is trying to engineer a soft-landing and so farthey have done a great job of it.

However, the longer rates stay high, the closer we may get to seeing the Fed’s planned economic slow down go too far. GDP, employment, real incomes, etc. These things will start to waiver, earnings will start to miss, and the market will start to look quite overbought at these levels which will kick off some serious selling and capitulation.

Recession indicators such as GDP forecasts, yield curve inversion, falling PMI, and tightening lending standards suggest it is more likely to go that route rather than the preferred soft-landing.

Because of this, I am short with positions in $SDS and $SPXS and am holding more cash than normal. The short is only 1.3% of my portfolio and the cash is 7.1%. I’ll be adding to this short and cash position through to the end of the year if we remain trending up.

I will be writing a portfolio update later this weekend, so stay tuned for that in order to read more about my positions and plans.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

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Economics

Stock Market Week in Review – 10/14/22

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETS, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers!

Weekly Review

This week might actually have been the craziest week in the market I’ve ever seen. It was a losing week for the S&P despite a 2.6% gain on Thursday after the CPI report.

Investors may be inclined to think that the CPI report was good on account of the Thursday rally, but the report was far from good. Total CPI was up 8.2% year over year versus 8.3% reported last month. Core CPI, which excludes food and energy, was up 6.6% versus 6.3%. This is the highest level of core CPI since August of 1982.

Initially, the markets reacted appropriately with a low opening (the S&P hit a new low for the year here), Treasury yields shot higher, and the USD Index jumped Thursday morning. That move lower coincidentally was also a 50% retracement of the pandemic rally. This technical indicator ignited a rebounding effort that was intensified by short-covering activity and huge buy-volumes from algorithms.

This became a huge rebound and extended outside of our market. The UK gilt market rallied on reports that the Prime Minister could scale back their fiscal stimulus plan.

The Dow swung 1,507 points from its intraday low to its intraday high on Thursday, the S&P swung almost 200 points, and the NASDAQ swung just over 600 points. Huge moves, but there was no follow through on Friday.

The S&P briefly pushed higher on Friday before falling hard. Gilt yields rose on worries about the state of the market now that the Bank of England has pulled its emergency liquidity report, the 10 years note yield hit 4%, and people woke up to the fact that the Thursday rally had no substance.

$JPM, $UNH, $WFC, and $C had some better-than-expected earnings on Friday which provided some support that day. But selling pressure from the 10-year note yield touching 4% proved too much.

Then, to add to the selling pressure, the Index of Consumer Sentiment report showed an increase in 1 year and 5 year inflation expectations, serving as a reminder that the market got carried away with the CPI rally on Thursday.

The sell off on Friday showed very little buying interest from investors. The same can be said of the retail shoppers in September based on the release of that report.

Total retail sales were flat for the month. Sales, excluding autos, were up only 0.1%. These figures are not adjusted for inflation. The uninspiring retail numbers for September suggest that consumers were watching their spending.

The new for this week was definitely loaded on the back end. One noteworthy item from the early week was talk from JPMorgan Chase CEO Jamie Dimon. On Monday, he stated that he thinks the economy will be in a recession in 6-9 months and that the market could fall another 20% if there is something like a hard landing.

Other new items came from the IMF who cut their global growth forecast by 0.2% to 2.7%. Reports showed that new restrictions were being put in place in Chinese cities for rising COVID cases and President Biden claims consequences for Saudi Arabia agreeing to cut oil production. Russia also increased air attacks on Ukraine cities.

The markets were hit this week with consumer discretionary, IT, utilities, and real estate being hit the hardest. Semiconductors were hit the hardest of all with many semi-indexes falling more than 8% this week. Consumer staples, health care, and financials were only sectors to come out ahead this week.

As I said last week, be ready for more losses in the long term! The Fed can still mess this up, if they stay too aggressive and miss the window to cool, pushing us into a recession. Jamie Dimon’s talk only served to reinforce my opinions which I have been stressing on here for weeks!

Next week has nothing of great importance on the economic calendar for the US, but lots to watch abroad which could have a small impact on our markets.

Next week I am thinking we see some more red, but not a huge amount, as investors continue their reality check with the fact that the CPI release was far from great.

This week was so volatile that I didn’t make too many buys, only Activision and my automatic adds, you can read about the portfolio here. Use that update to help you put together a shopping list of some solid dividend stocks to pick up for the long term.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

Categories
Economics Market Recap

Monthly Market Recap – May 2022

In May, the S&P 500 fell at most by 7.7% before a shocking rally in the last week of the month brought the index flat. Year-to-date the S&P’s loss is just under 14%. The market’s strong volatility this year demonstrates fiscal battle that is currently happening between our strong economic conditions and the ever growing and looming threat of supply chain issues, increasing rates, and stubborn inflation. The uncertainty lies in which of the two forces is poised to take control. Currently, things are going fine. The economy and the policy makers are taking precautions to try and keep it that way. However, there is a storm down the road and, as JPMorgan CEO Jaime Dimon put it, “we just don’t know if it’s a minor one or Superstorm Sandy”.

Photographer: Chris Ratcliffe/Bloomberg

Jaime Dimon also estimated that American consumers sitting on $2 trillion in pandemic-era savings that can help power the economy even as inflation chips away at it, but only for a time. Consumer sentiment dropped to its lowest level since 2008 this month. Fuel prices are high, the cost of food has risen, borrowing costs are increasing, and other price pressures threaten consumer spending which make up about 70% of the US’s economic growth.

We are well past the phase of inflation being “transitory”. It’s here, and it’s a frightening issue. The concern now is if the Fed will manage create a soft landing where inflation staggers and growth slows mildly, or will inflation push us into a new recession. Unfortunately, there’s no way of knowing. This stubborn inflation has a myriad of outcomes that are impossible to predict and I recommend that you don’t try to. Exerting energy on worrying about things out of our control is a waste. Being a stock investor requires us to be comfortable with whatever short-term and unpredictable volatility the market throws at us. Risk vs reward teaches us that this (hopefully) short-term risk is the price the stock market demands from us in order to gain from the higher long-term returns compared to bonds, annuities, CDs, etc.. You have to maintain emotional stability with your investments in order to realize those higher long-term gains.

Through this volatility I have continued to add to positions regularly and keep my head level. Owning time-tested and successful companies that have emerged strong through similar historical struggles and a reasonable portfolio allocation are things that keep me stable and confident in my investments. It also helps to remember that no one, emphasis on NO ONE, can consistently time the market. If you have any faith in the efficient market hypothesis, then you know that every nano-second of every trading day there are an inconceivable number of trades, statistics, news headlines, and decisions being made that make the market far too complex to successfully time reliably. Just as investors find it difficult to time the market, economists have little success with forecasting recessions. History has shown that economists and analysts of both the private and official sector miss forecasting the magnitude of the recession by a wide margin until the year of the recession is nearly over.

It is clear that nobody is smart enough to time the market or forecast a recession. That is why it is important as a dividend income investor to tune out the noise in this environment, hunker down, and stick to the long term plan that is in place. Place your faith in strong and successful companies, watch their reporting, news, price action, and financial data in order stay in tune with the health of their dividends, and if it seems to be shaking take action, otherwise continue as planned. It really is quite simple. Despite the market’s uncertainties, the investing space for dividends have remained strong. The market experienced a number of dividend increases with 31% from Lowe’s (LOW), 7.6% from Deere (DE), 10% from Northrop Grumman (NOC), and a handful of other notable raises from several banks. Quality dividend stocks are a safe haven in volatile times. Use that knowledge and other things discussed in this monthly recap to stick to the plan and build yourself financial freedom through dividend income.

Thank you for your support, see you next month for another recap and more frequently with portfolio updates and other articles.